Thames Water warns ageing assets pose ‘risk to public safety’

Thames Water has warned that its ageing assets pose “a risk to public safety, water supply and the environment” in a report that lays bare the scale of the challenge facing Britain’s biggest water utility, which is at risk of financial collapse.

The regional monopoly, which provides crucial water and sewerage services to London and the surrounding area, warned that it has around £19bn of assets that are in “poor” or “failed condition” or are “no longer capable of reliably performing their function”.

The problems range from crumbling sewage and water pipes to obsolete monitoring technology and a shortage of reservoirs, according to the company’s report.

Hazards incurred from years of under-investment include the risk of “rapid flooding” at 37,545 basement properties in London because “they are located near the main water trunk mains, which are bursting more frequently”. 

There are also risks from Cryptosporidium oocysts — a parasite in drinking water that can cause diarrhoea — as the four large London water processing plants require upgrades.

Forty-three incidents of cryptosporidium in the water have been detected since 2018, the report said, and the Drinking Water Inspectorate has raised concerns.

The warning forms part of the business plan for the next five-year regulatory cycle submitted by Thames Water to Ofwat, the watchdog, as the company tries to stave off financial collapse and temporary nationalisation.

Thames Water’s proposals include jacking up household bills by 59 per cent. Ofwat is due to make a draft decision on the utility’s business plan on July 11, less than a week after the UK goes to the polls in the general election.

Politicians of all stripes have spoken out against water companies, which have attracted public ire after pollution and spills. But Thames Water, which is struggling under the weight of £18bn of debt, has been under the most scrutiny. Labour, which is widely predicted to win the election, has said it is not in favour of nationalising Thames Water but it does want a more stringent regulatory regime.

The plans by Thames Water, which services around 16mn households, to increase household bills would take charges from around £471 a year now to £749 in 2029-30, assuming inflation of 2 per cent.

The utility is hoping that this and a new “recovery regime”, which includes limits to regulatory fines, would enable it to raise debt and equity later this year to keep running and deliver improvements.

It has stated it has enough cash to last it until May 2025. Its biggest investor, the Canadian pension fund Omers, has written its stake down to zero and shareholders have said the current regulatory regime makes Thames Water “uninvestable”.

As most of the company’s infrastructure was installed before privatisation 34 years ago, the need for expensive repairs to poorly maintained assets is swallowing an ever-increasing part of its budget, depleting cash for improvements, according to the report.

Thames Water has said it needs to spend £19bn in the five years to 2030, which would help it double its capital expenditure allowance from £6bn in the current five-year period to £12bn, of which £1.9bn would go towards upgrading existing assets.

Thames Water’s report states that the company is keen to “break the cycle of sweating assets” but alleges that Ofwat has historically underestimated the “operational risks” and the extent of capital maintenance required.

Ofwat declined to comment on the report.

The report states that Thames Water’s current annual replacement rate for sewers is 0.2 per cent, meaning they will take 500 years to replace, while on water pipes, the rate is 0.6 per cent and would take 167 years.

Thames Water said in a statement that it had already started improving its largest water treatment works in London and that “since 2010 more than 99.95 per cent of tests taken from customers’ taps met the standard required by UK legislation”.

Bursts of rising mains — which pump effluent through sewer pipes to wastewater treatment works — have increased by 70 per cent over the past seven years in part because infrastructure installed in the latter half of the 20th century has now “reached the end of its estimated serviceable life”, according to the report.

The last major improvement programme was carried out between 2006 and 2008 and investment in rehabilitation and replacements has failed to keep pace since then, the report said.